Sudhakar Gundappa Paldewar Vs CIT (Appeals) (ITAT Pune)
The appeal concerns the taxation of leave encashment claimed by a retired PSU Bank employee under Section 10(10AA) of the Income Tax Act, 1961. The assessee had filed a return for AY 2020-21 claiming exemption under Section 10(10AA)(i) as if he were a government employee, seeking a refund of Rs. 1,96,170. The CPC/AO restricted the exemption to Rs. 3,00,000 under Section 10(10AA)(ii), taxing the remaining unutilized earned leave, and reduced the refund to Rs. 1,31,291. Subsequent rectification under Section 154 rejected the assessee’s excess claim of Rs. 75,715.
The assessee argued that, as a PSU bank employee, he should receive the same exemption as central government employees since the statutory limit of Rs. 3,00,000 had not been updated in line with increases in government pay. CIT(A)/NFAC dismissed the appeal, observing that in the absence of a specific Gazette notification linking the deduction to the Cabinet Secretary’s pay, the claim could not be allowed. Judicial precedent also supported that non-government employees could not claim enhanced exemptions beyond Rs. 3,00,000.
The assessee presented supporting rulings, including Govind Chhatwani vs. CIT(A), Ram Charan Gupta vs. ITO, and Neelam Gupta, where tribunals had allowed leave encashment exemptions under Section 10(10AA) in similar circumstances. He further relied on the notification No. 31/2023 issued by the Ministry of Finance, which increased the exemption limit to Rs. 25,00,000, arguing that his claimed leave encashment of Rs. 6,97,100 falls below the revised threshold.
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